1. Steps to Effective Pricing
2. Factors to consider when setting Price
   1. Internal
      1. Marketing Objectives -Before setting price, company must decide on it's Strategy -At same time it must seek other objectives
         1. Survival
            1. Facing economic downturn
            2. Have too much capacity
            3. Face heavy competition
            4. Changing of consumer wants
            5. Reasons
            6. To cover variable and fixed costs
            7. Stay in business until conditions change or problems corrected
         2. Current Profit Maximisation
            1. Maximise cash profit, cash flow or ROI
            2. Reasons: For financial returns rather than long term growth
         3. Market-Share Leadership
            1. Belief of company with largest market share will enjoy the lowest costs and highest long-run profit.
         4. Product-Quality Leadership
            1. Enables company to charge high price to cover the high product quality and high cost of R&D
         5. Other objectives
            1. Low prices to prevent competition from entering market
            2. Set prices at competition levels to stabilise market
            3. To keep loyalty and support of resellers
            4. Avoid govt. intervention
            5. Temp. reduction to create excitement for product or to draw more attention in-store
            6. Help the sales of other products in the company's line
      2. Marketing Mix Strategy
         1. Price is only one aspect of the marketing mix; price decisions must be coordinated with product design, distribution and promotion decisions to form a consistent and effective marketing program
      3. Costs
         1. Sets the "floor" for the price that the company can charge for it's products
         2. The company wants to charge a price that covers all it's cost for producing, distributing and selling the product and also delivers a fair rate of return for it's effort and risk
         3. Cost may be an import element in the pricing strategy
         4. Lower costs may mean lower prices, greater sales and profits
      4. Economics of info-based products
         1. Information goods such as software, books, movies and music have a different cost structure from tangible products
         2. Most of the production cost are fixed costs that cannot be recovered if production is stopped
         3. The variable costs for producing additional copies are very low
      5. Organisational Considerations
         1. Management must decide who within the organisation should set prices
         2. In small companies, price setting is often handled by top management
         3. In large companies, price setting is typically handled by divisional or product line managers
   2. External
      1. The Market and Demand
         1. Pure Competition
         2. Monopolistic Competition
         3. Oligopolistic Competition
         4. Pure Monopoly
      2. Competitor's Prices and Offers
      3. Other External Factors
   3. Competition
   4. Other Environmental Factors
3. General Pricing Approaches
   1. Cost Based Pricing
      1. Cost-Plus Pricing
      2. Break-Even Analysis and Target Profit Pricing
   2. Value-Based Pricing
   3. Competition-Based Pricing
      1. Economic-Value Pricing
      2. Going-Rate Pricing
      3. Sealed-Bid/Tenders
   4. Performance-Based Pricing
   5. Relationship Pricing
      1. Special Relationship
         1. Special relationship, sharing, but no change in price
      2. Enrichment
         1. Price is established as a function of the enrichment the customer sees
      3. Shared Risk & Rewards
         1. Price is replaced by a sharing arrangement based on the value provided to the enrichment chain
4. New Product Pricing Strategies
   1. Pricing an Innovative Product
   2. Market-Skimming Pricing
   3. Market-Penetration Pricing
   4. Pricing an Imitative New Product
5. Product Mix & Service Mix Pricing Strategies
   1. Product/Service-Line Pricing
      1. Setting price steps between product-line & service-line items. eg. Apple; laptops
   2. Optional Product/Service Pricing
      1. Pricing optional or accessory products and services sold with the main product or service. eg. Cars; adding options
   3. Captive Product/Service Pricing
      1. Pricing products and services that must be used with the main product or service. eg. Inkjets; low cost, high consumables
      2. SERVICES Two-Part Pricing: Price of the service is broken into a "fixed fee plus variable usage" eg. Hotel is competitively priced; profit made on meals & mini-bars
   4. By-Product Pricing
      1. Pricing low-value by-products or services to get rid of them. eg. Abattoirs; selling offal as pet food
   5. Product/Service-Bundle Pricing
      1. Pricing bundles of products or services sold together. eg. Sport teams; season tickets
6. Price-Adjustment Strategies
   1. Discount Pricing & Allowances - Reducing prices to reward customer responses such as paying early or promoting the product or service.
      1. Cash Discounts
         1. Help to improve seller's cash flow, reduce bad debts and lower credit-collection costs
      2. Quantity Discounts
         1. Incentive to the customer to buy more from seller rather than buying from many sources
      3. Functional Discounts
         1. Trade Discount; for performing certain functions. eg. selling, storing & record keeping
      4. Seasonal Discounts
         1. Normally offered in slow periods; off season
      5. Allowances
         1. Eg. Trade-In allowance etc
   2. Segmented Pricing Strategy
      1. Customer Segmented Pricing
         1. Customer Segment Pricing
            1. Different customers pay different prices for same product. eg. Museum; student prices
      2. Product-Form Pricing
         1. Different versions of the product are priced differently, but not according to differences in their costs. eg. DVD recorder models
      3. Location Pricing
         1. Different locations are priced differently, even though the cost of offering each location is the same. eg. Theatres; seat costs
      4. Time Pricing
         1. Prices are varied seasonally. eg. off-peak
      5. CONDITIONS FOR AN EFFECTIVE STRATEGY
         1. Market must be segmentable
         2. Segments must show different degrees of demand
         3. Members of the segment at lower price should not be able to resell to higher segement
         4. Competitors should not be able to undersell the firm in the segment charged the higher price
         5. Differentiated price must be legal
   3. Psychological Pricing Strategy
      1. A pricing approach that considers the pyschology of price and not simply the economics - the price is used to say something about the product. eg. luxury must be better quality
      2. REFERENCE PRICING
         1. The prices that buyers carry in their minds and refer to when they look at a given product. eg. stating the manufacturer's RRP
   4. Promotional Pricing Strategy
      1. Temporarily pricing products below list price, and sometimes below cost, to increase short run sales.
   5. Value Pricing Strategy
      1. Value Pricing starts with the customer and benefits the product creates relative to key competitors
   6. Geographical Pricing Strategy
      1. FOB-Origin Pricing
         1. "Free On Board" end user pays for the freight.
         2. Disadvantage: becoming a high cost firm to distant customers
      2. Uniform Delivered Pricing
         1. Company charges the same prices regardless of customer's location
      3. Zone Pricing
         1. Company sets up 2 or more zones. All customers within zone pay same total price, this price is higher in the more distant zones
      4. Basing-Point Pricing
         1. Seller designates a city as a base point and charges customers from that point to their location, regardless of which city goods are shipped from.
      5. Freight-Absorption Pricing
         1. The company absorbs all freight costs in order to get the business.
   7. International Pricing Strategy
      1. Factors to consider
         1. Economic conditions
         2. competitive situations
         3. laws and regulations
         4. development of wholesaling and retailing system
         5. Consumer's perceptions
         6. Company's Marketing Objectives
7. Price Flexibility on the Net
8. Price Changes
   1. Initiating Price Changes
      1. Initiating Price Cuts
      2. Initiating Price Increases
      3. Buyer Reactions to Price Changes
      4. Competitor Reactions to Price Changes
   2. Responding to Price Changes